Yes or No? A guide for leaders on managing unpaid leave

Annual leave is a precious commodity and for some employees, there is just never enough. The evolving nature of work has fundamentally changed how we approach our jobs, leading many to re-evaluate their priorities. Some workers are eager to dust off their passports and embark on an extended holiday, while others feel the need to dive into study or a new-found hobby.

Occasionally, an unpaid leave request also arises when employees face unexpected challenges such as divorce, illness, or caring for a loved one. Regardless of the reason, taking extra time off can benefit both the employee and the business. However, some leaders are unsure how to handle an employee’s request for unpaid leave.

What is unpaid leave?

Unpaid leave is a general term to describe any period of leave that is unpaid. Some forms of unpaid leave (such as unpaid parental leave and unpaid community service leave) are an entitlement under the National Employment Standards (NES), a modern award or enterprise agreement, but in many cases ‘unpaid leave’ is simply referring to an agreed absence from work rather than a particular entitlement. While most unpaid leave is planned, there are occasions where an employee finds themselves in a period of unpaid leave because they have exhausted their personal leave entitlement, but they are unfit or unable to attend work.

It is important to note that an employee on a period of unpaid leave or unpaid authorised absence will not accrue leave entitlements as these periods do not count as service as defined under the Fair Work Act. The exception is unpaid community service leave, which continues to count as service under the Fair Work Act definition. Whether long service leave continues to accrue on a period of unpaid leave depends on the long service leave legislation which applies. See our Long Service Leave (LSL) Provisions Summary or Ai Grouop Members can contact Ai Group’s Workplace Advice Line on 1300 55 66 77 if you would like advice about whether leave should accrue for a particular absence.

Do employees need to apply for unpaid leave?

There are occasions where an employee will utilise unpaid leave without an application and approval process. However, this is generally an exception, rather than the rule. Most employers will consider their approach to unpaid leave and capture their process in the leave policy. This provides a transparent framework for workers to understand both the employer’s appetite for unpaid leave and the employee responsibilities and considerations.

The leave policy should clearly outline the application and approval process to assist the employee to understand that unpaid leave must be approached and approved in the same manner as other leave types.

Do employers have to approve all requests for unpaid leave?

The Fair Work Act specifies that an employee has an entitlement to take unpaid parental leave, compassionate leave, family and domestic violence leave and carers leave, provided the employee meets the notice and evidence requirements under the NES. Of course if a permanent employee has exhaused their paid personal leave balance and are unwell or need to care for an eligible individual then unpaid leave may be an option. Employers must also consider the right of casual employees to choose not to work, or to take some forms of leave under the NES such as unpaid carers leave and unpaid compassionate leave.

Where an employee is requesting unpaid leave that is not related to a particular entitlement under the NES or an award/agreement, for example where the employee wishes to take an extended holiday or sabbatical, it is recommended that employers approach the request for unpaid leave with an open mind and consider how it may benefit the employee’s wellbeing, engagement and loyalty to the business. Similarly, it is recommended that organisations consider the benefits to the business. For example:

• Will this provide an opportunity for another employee to step up and learn a new skill?
• Could this provide a financial benefit to the business if the request is over a time when business is normally slow?
• Could this break refresh the employee to position them to return with a new passion and energy for their role?
• What could be the benefits to the workplace culture and engagement when employees enjoy this benefit?

That being said, there are times when approving unpaid leave can be problematic to the business or make it challenging for the employer to service customer needs.

If the employer does not have a leave policy, they will need to work with the employee on a case-by-case scenario to determine the viability. Employers are encouraged to contact Ai Group for advice.

Could there be a compromise?

If an employee approaches their leader with a plan to backpack through Europe for three months, but the thought of losing their experience is too much to manage, could there be a compromise that works for both parties?

For example:

• Does the experience need to be three months or could it be just as exciting for two months?
• In a world of remote and asynchronous working, is there a possibility for the employee to work abroad for part of the time?
• Is the employee open to shifting their dates to a time that is quieter for the business?
• Could the trip be postponed long enough to help upskill another team member?

The trick is to explore the idea using open questions to determine what is most important to the employee and work with them to find a happy medium.

Preparing the business for requests of unpaid leave

Some businesses enjoy a culture whereby almost every department has a team member experiencing the benefits of unpaid leave. This is a sign that the employer is willing and able to support workers in whatever is important to them. A flexible workplace culture becomes a secret weapon in the attraction and retention of quality employees.

Even if the business is willing to say ‘yes’, it can be challenging to ensure that customers and output are not impacted. For this reason, now is the time for employers to start planning so that when the request comes there is a strong chance of approval.

The following 5 tips will support a successful unpaid leave request:

1. Review your leave policy and perhaps look for ways to introduce unpaid leave as part of the normal operating rhythm of the business. If there are obvious hurdles (e.g. small business) consider placing a limit that is manageable. An example maybe taking annual leave at half pay e.g two weeks of leave but only paid for one. 
2. Educate your leaders on their requirements to consider and not to unreasonably refuse. Think about running a workshop where HR or a senior leader can brainstorm common scenarios and approvals to build confidence.
3. Ensure that the business has succession planning in place so that key roles have been identified with a plan to upskill other workers. This should be promoted as a benefit to all as it generates employee development and safeguards the business.
4. Capture the success stories of when unpaid leave has gone well to show other workers and leaders how it can be mutually beneficial. Consider interviewing employees and leaders on how they approached it, and how to make it successful.
5. Don’t make it a secret policy that accumulates dust in the bottom drawer. If the business goes to the trouble of generating a policy to support unpaid leave; this needs to be shared and promoted at every opportunity. Employees should see this as a tangible benefit and not something that is frowned upon.

Look for ways to say yes

It is understandable that some employers want to decline unpaid leave because they have a genuine fear about the impact on the business. Some leaders will also feel that unpaid leave is a privilege that they were never granted in ‘their day’ and such a request shows a lack of commitment. Truthfully, a request for unpaid leave can be the greatest sign of loyalty from employees who love their jobs and want to remain part of the team for many years to come; but simply need a break from their daily routine.

While there is always a chance that a 2-month European vacation will turn into a desire to permanently live in a Tuscan villa, research shows that most people want to have their adventure and then return back home to the life that they put on hold. Sure, it can be inconvenient to lose your top sales consultant while they travel the world, but nothing beats welcoming home a team member that is refreshed, full of life and more than ready to get back on the payroll.

Further information

For assistance with developing a leave policy see our Sample Leave Policy.  

For assistance with your workplace matters, Members of Ai Group can contact us or call our Workplace Advice Line on 1300 55 66 77 for further information.

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